CarMax: A Potential Value Buy Amid Rising New Car Prices

CarMax, a used car retailer, could be a value buy due to the rising cost of new cars. The average new light vehicle now costs $48,000, and tariffs are expected to further increase prices. This trend should benefit used car retailers like CarMax.

CarMax, Inc. (NYSE:KMX), a prominent used car retailer, could be an attractive investment opportunity given the current market conditions. The average new light vehicle price has surged to $48,000, and the imposition of tariffs is expected to further elevate costs. This trend presents a favorable environment for used car retailers like CarMax, as consumers may turn to used vehicles to mitigate the financial burden of new car purchases.

In July 2025, CarMax reported a one-month return of -14.13% and a 27.00% loss over the last 52 weeks, as highlighted in the Diamond Hill Capital’s “Large Cap Fund” investor letter [2]. Despite this recent decline, the company has shown resilience, delivering total sales of $7.5 billion in the first quarter of 2025, up 6% compared to the previous year. This performance indicates that CarMax continues to benefit from strong demand for used vehicles.

The rising cost of new cars is not the only factor driving demand for used vehicles. The tight supply of new cars, exacerbated by production shutdowns in 2021 and 2022, has led to a shortage of newer, low-mileage inventory. According to Edmunds, the average price of a 3-year-old used car has risen to over $30,000, and the overall average listed price of a used car is $25,512 in June 2025 [3]. This scarcity and the increasing prices of new cars are pushing consumers towards the used car market, presenting an opportunity for CarMax.

Moreover, the potential for further price increases in new cars due to tariffs adds to the appeal of used vehicles. The Federal Reserve’s decision to maintain its current rate in July 2025 is likely to keep interest rates elevated, further emphasizing the value proposition of used cars. High interest rates make financing new cars more expensive, while used cars offer a more affordable alternative.

CarMax's inventory management strategy also plays a significant role in its success. The company has been able to maintain relatively healthy retail sales despite the challenges posed by the pandemic and subsequent market disruptions. The tight supply of used vehicles at CarMax auctions, as reported by Manheim, suggests that the company is well-positioned to capitalize on the growing demand for used cars [1].

In conclusion, CarMax appears to be a potential value play for investors seeking exposure to the used car market. The rising cost of new cars, the tight supply of new vehicles, and the potential for further price increases due to tariffs all contribute to a favorable environment for used car retailers like CarMax. However, investors should carefully consider the company’s recent performance and the broader market conditions before making an investment decision.

References:
[1] https://wolfstreet.com/2025/08/07/used-car-truck-wholesale-prices-amid-solid-retail-demand-and-tight-supply/
[2] https://finance.yahoo.com/news/carmax-kmx-fell-amid-concerns-115728150.html
[3] https://www.consumerreports.org/cars/buying-a-car/when-to-buy-a-used-car-a6584238157/